Agency
What are the three essential elements for the formation of an agency relation?
1. Manifestation by the principal
2. Acceptance by the agent
3. Control by the principal over the agent's actions
What is the fundamental accounting equation?
Assets = Liabilities + Equity
What is the key governance document for a partnership, and is it required?
Partnership agreement, not required
What level is consent required for ordinary versus extraordinary decisions?
Ordinary: Majority
Extraordinary: Unanimous
What does the money guy want in the partnership agreement? (name 3)
pre-emptive rights
Indemnity clauses
Defining profits and losses
Limit own duty to the partnership
Probably wants a preferred return
Rights and protections
What are the three types of authority? (dont need to explain)
Actual
Apparent
Inherent
What are pre-emptive rights?
Rights given to existing equity owners to buy a proportional interest in a future issuance of interests
Can a partner transfer their full partnership interest without consent? What part of it can they transfer?
Cannot transfer management rights.
Can transfer financial rights.
What activities must a creditor of a partnership avoid in order to not become liable for actions of the partnership? (Lupien case)
Control of the business on a day-to-day basis
(Purely negative veto control may be okay)
What is a security?
An equity interest sold to someone who is not a manager/member of the entity.
What is ratification and what are the three things required for it?
The principal needs to know material facts
No intervenors are prejudiced
You have to ratify it all or none at all
What is the equity in a partnership called?
Partnership interest
Define a partnership
An association of two or more people to carry on as co-owners of a business for profit, whether or not they intend to form a partnership.
Indemnification is an obligation of ___ while contribution is an obligation of ___
the partnership
a partner
What is the difference between net and gross profit?
Gross = sales revenue - cost of goods
Explain who has liability in disclosed, partially disclosed, and undisclosed principal situations
Disclosed: Only principal
Partially disclosed: Grey area
Undisclosed: Agent
Why does it matter if someone is an employee or independent contractor? (just get 3/6 for credit)
Worker protections
Tax implications
Labor Market Flexibility
Economic inequality
Impact on Unions
What is it called when individuals represent themselves as partners to third parties who reasonably relied on that representation?
Partnership by estoppel
What is the order of payments when winding up a partnership?
1. Outside creditors
2. Partner creditors
3. Partner capital contributions
4. Profits
What are Del's 5 key clauses of a partnership agreement? (name 3 at least)
1. Decision making
2. Capital contributions and financing
3. Salaries and Distributions
4. Death and disability
5. Dissolution
What type of authority is based on an agent's role, allowing them to perform actions typical for that position?
Inherent authority
What is leverage?
The use of debt to increase the potential return on equity/investment
What are the two "approaches" to categorizing partnerships, and briefly explain what they are.
Entity: Partnership is its own entity separate and distinct from its partners.
Aggregate: Each partner is treated as the owner of an undivided interest in partnership assets and operations.
What are the penalties for wrongful dissolution of a partnership?
The wrongful dissolving partner is subject to claims for damages for breach of the agreement
The remaining partners can decide to continue the business of the partnership (avoid winding up) without the wrongfully dissociating partner
Wrongfully dissociating partner does not get benefit of goodwill
Explain the holding of Dodge v. Ford Motor Co.
Primary purpose for corporations is to make money
Primary responsibility is the shareholders not the stakeholders